Criminal Tax Manual
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10.00 FAILURE TO FILE, SUPPLY INFORMATION OR PAY TAX
Updated May 2001
10.01 STATUTORY LANGUAGE: 26 U.S.C. § 7203
10.02 GENERALLY
10.03 PERSON LIABLE
10.04 FAILURE TO FILE
10.04[1] Elements
10.04[2] Required by Law to File
10.04[2][a] Income Tax Returns
10.04[2][b] Section 6050I (Forms 8300)
10.04[3] Return Not Filed at Time Required by Law
10.04[3][a] What is a Return
10.04[3][b] Return Not Filed at Time Required by Law
10.04[4] Proof of Failure to File
10.04[5] Willfulness
10.04[5][a] Proof of Willfulness
10.04[5][b] Willful Blindness or Deliberate Ignorance
10.04[6] Tax Deficiency Not Necessary
10.04[7] Venue - Failure to File
10.04[8] Statute of Limitations
10.05 FAILURE TO PAY
10.05[1] Elements
10.05[2] Required by Law to Pay
10.05[3] Failure to Pay
10.05[4] Willful Failure to Pay
10.05[5] Venue
10.05[6] Statute of Limitations
10.06 SENTENCING
10.07 DEFENSES
10.07[1] Intent to Pay Taxes in Future
10.07[2] Absence of a Tax Deficiency
10.07[3] Delinquent Filing
10.07[4] Negligence
10.07[5] Civil Remedy Not Relevant
10.07[6] Inability to Pay
10.07[7] IRS Required to Prepare Returns
10.07[8] Marital and Financial Difficulties
10.07[9] Fear of Filing
10.07[10] Claim That Returns Were Mailed
10.07[11] Complicated Records
10.07[12] Paperwork Reduction Act
10.07[13] Other Defenses
10.08 LESSER INCLUDED OFFENSE/RELATIONSHIP TO TAX EVASION
10.01 STATUTORY LANGUAGE: 26 U.S.C. § 7203
§7203. Willful failure to file return, supply information, or
pay tax
Any person required under this title to pay any estimated tax or
tax, or required by this title or by regulations made under authority
thereof to make a return, keep any records, or supply any information,
who willfully fails to pay such estimated tax or tax, make such
return, keep such records, or supply such information, at the time or
times required by law or regulations, shall, in addition to other
penalties provided by law, be guilty of a misdemeanor and, upon
conviction thereof, shall be fined* not more than $25,000 ($100,000 in
the case of a corporation), or imprisoned not more than 1 year, or
both, together with the costs of prosecution. In the case of any
person with respect to whom there is a failure to pay any estimated
tax, this section shall not apply to such person with respect to such
failure if there is no addition to tax under section 6654 or 6655 with
respect to such failure. In the case of a willful violation of any
provision of section 6050I, the first sentence of this section shall
be applied by substituting "felony" for "misdemeanor" and "5 years"
for "1 year."
*For offenses committed after December 31, 1984, the Criminal
Fine Enforcement Act of 1984 (P.L. 98-596) enacted 18 U.S.C. §
3623 [FN1] which increased the maximum permissible fines for both
misdemeanors and felonies. For the misdemeanor offenses set forth in
section 7203, the maximum permissible fine for offenses committed
after December 31, 1984, is at least $100,000 in the case of
individuals. As to corporations, the maximum permissible fine is at
least $200,000. For felony offenses in section 7203 involving willful
violations of section 6050I, the maximum permissible fine is at least
$250,000 for individuals and $500,000 for corporations.
Alternatively, if any person derives pecuniary gain from the offense,
or if the offense results in pecuniary loss to a person other than the
defendant, the defendant may be fined not more than the greater of
twice the gross gain or twice the gross loss.
10.02 GENERALLY
Section 7203 covers four different situations -- each of which
constitutes a failure to perform in a timely fashion an obligation imposed
by the Internal Revenue Code: (1) failure to pay an estimated tax or tax;
(2) failure to make (file) a return; (3) failure to keep records; and, (4)
failure to supply information.
With the exception of cases involving willful violations of any
provision of section 6050I of the Internal Revenue Code, all of the offenses
under section 7203 are misdemeanors. Therefore, except for section 6050I
felonies, section 7203 prosecutions may be initiated either by information
or indictment. Reference should be made to Section 25.00, infra, for
additional discussion of violations of section 6050I.
The charge most often brought under section 7203 is the failure to
make (file) a return. A number of cases are also brought under section
7203 for failure to pay a tax. Note that the attempt to evade or defeat the
payment of a tax is a felony under section 7201 of the Code. Willfulness is
the same for both misdemeanor offenses and felony offenses under the
Internal Revenue Code. The difference in the offenses is that failure to
file or pay under section 7203 involves merely a failure to do something (an
omission), whereas there must be an affirmative act or a "willful
commission" to raise the offense to a section 7201 felony. Sansone v.
United States, 380 U.S. 343, 351 (1965). Note also that, by its express
terms, section 7203 does not apply to a "failure to pay an estimated tax" if
there is no "addition to tax" pursuant to the rules provided for in section
6654 (Failure By Individuals To Pay Estimated Income Tax) and section 6655
(Failure By Corporation To Pay Estimated Tax).
Some cases have also been brought charging a failure to supply
information and these are noted below. The charge of failing to "keep any
records" is not commonly used and is not treated separately in this manual.
10.03 PERSON LIABLE
Each of the categories set forth in section 7203 specifies a distinct
and separate obligation. Failure to perform an obligation in any one of the
categories may constitute an offense. See Sansone v. United
States, 380 U.S. 343, 351 (1965). An offender may be charged with
failure to perform each obligation as often as the obligation arises.
See United States v. Harris, 726 F.2d 558, 560 (9th Cir.
1984) (defendant who failed to file for three years guilty of three
separate offenses rather than one continuing offense); United States v.
Stuart, 689 F.2d 759, 763 (8th Cir. 1982) (same).
Any "person" who fails to perform an obligation imposed by the
Internal Revenue Code and the applicable regulations may be liable for
prosecution under section 7203. The term "person" is "construed to mean and
include an individual, a trust, estate, partnership, association, company or
corporation." 26 U.S.C. § 7701(a)(1). Internal Revenue Code section
7343 extends the definition of "person" to include "an officer or employee
of a corporation, or a member or employee of a partnership who as such
officer, employee, or member is under a duty to perform the act in respect
of which the violation occurs." See United States v. Neal, 93
F.3d 219, 223 (6th Cir. 1996)(corporate officers liable under section 7203
for failure to file employer's quarterly tax return (Form 941)); Ryan v.
United States, 314 F.2d 306, 309 (10th Cir. 1963).
10.04 FAILURE TO FILE
10.04[1] Elements
To establish the offense of failure to make (file) a return, the
government must prove three essential elements beyond a reasonable doubt:
1. Defendant was a person required to file a return;
2. Defendant failed to file at the time required by law; and,
3. The failure to file was willful.
United States v. Hayes, 190 F.3d 939, 946 (9th Cir. 1999); United
States v. Vroman, 975 F.2d 669, 671 (9th Cir. 1992); United States v.
Harting, 879 F.2d 765, 766-67 (10th Cir. 1989); United States v.
Williams, 875 F.2d 846, 850 (11th Cir. 1989); United States v.
Foster, 789 F.2d 457, 460 (7th Cir. 1986); United States v.
Gleason, 726 F.2d 385, 388 (8th Cir. 1984); United States v.
Buras, 633 F.2d 1356, 1358 (9th Cir. 1980).
10.04[2] Required by Law to File
10.04[2][a] Income Tax Returns
Various provisions of the Internal Revenue Code (and regulations
thereunder) specify the events which trigger the obligation to file a
return. Section 6012 of the Internal Revenue Code lists the persons and
entities required to make returns with respect to income taxes.
The receipt of a specified amount of gross income generally determines
whether an income tax return must be filed. See United States v.
Middleton, 246 F.3d 825, 841 (6th Cir. 2001) (stating that the assertion
that the filing of an income tax return is "voluntary" is frivolous because
26 U.S.C. § 6012(a)(1)(A) requires that every individual who earns a
threshhold level of income must file a tax return. "Gross income" is
broadly defined in section 61(a) of the Code to mean:
[A]ll income from whatever source derived, including (but not limited
to) the following items:
(1) Compensation for services, including fees, commissions,
fringe benefits, and similar items;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Alimony and separate maintenance payments;
(9) Annuities;
(10) Income from life insurance and endowment contracts;
(11) Pensions;
(12) Income from discharge of indebtedness;
(13) Distributive share of partnership gross income;
(14) Income in respect of a decedent; and
(15) Income from an interest in an estate or trust.
The amount of gross income which serves to trigger the filing requirement
has changed over the years. Consequently, care must be exercised to insure
that the amount of gross income received by the defendant was sufficient to
require the filing of a return in the particular year at issue. For taxable
years beginning after December 31, 1984, section 6012 provides a formula
based on gross income to determine whether an individual must make a return.
To meet its burden, the government need prove only that a person's
gross income equals or exceeds the statutory minimum. United States v.
Bell, 734 F.2d 1315, 1316 (8th Cir. 1984); United States v.
Wade, 585 F.2d 573, 574 (5th Cir. 1978).. Where the government is
unable to present direct evidence of gross income, its burden may be
satisfied by means of an indirect method of proof. United States v.
Bianco, 534 F.2d 501, 503-06 (2d Cir. 1976) (evidence of expenditures in
excess of the statutory minimum plus evidence negating nontaxable sources);
United States v. Shy, 383 F. Supp. 673, 675 (D. Del. 1974) (net
worth).
Gross income is different and distinguishable from gross receipts.
"Gross receipts cannot be called gross income, insofar as they consist of
borrowings of capital, return of capital, or any other items which the IRS
Code has excluded from gross income." United States v. Ballard, 535
F.2d 400, 404 (8th Cir. 1976). See United States v.
Goldstein, 56 F.R.D. 52, 55 (D. Del. 1972). Nevertheless, gross
receipts remaining, after appropriate adjustment, may properly reflect gross
income. Clark v. United States, 211 F.2d 100, 102 (8th Cir. 1954).
See also United States v. Wade, 585 F.2d 573, 574 (5th
Cir. 1978); United States v. Garguilo, 554 F.2d 59, 62 (2d Cir.
1977); Ballard, 535 F.2d at 405.
For manufacturing, merchandising, or mining enterprises, where the
filing requirement is predicated upon gross income, gross income is
determined, in part, by subtracting the cost of goods sold from gross
receipts or total sales. Treas. Reg. § 1.61-3 (26 C.F.R.);
Ballard, 535 F.2d at 400, 404-05. To meet its burden, the government
need prove only that gross receipts exceed the cost of goods sold by an
amount sufficient to trigger the reporting requirement. United States v.
Francisco, 614 F.2d 617, 618 (8th Cir. 1980); Siravo v. United
States, 377 F.2d 469, 473 (1st Cir. 1967). See United States
v. Gillings, 568 F.2d 1307, 1310 (9th Cir. 1978). The burden then
shifts to the enterprise to come forward with evidence of offsetting
expenses. United States v. Bell, 734 F.2d 1315, 1317 (8th Cir.
1984); Siravo, 377 F.2d at 473-74; United States v. Bahr,
580 F. Supp. 167, 170-71 (N.D. Iowa 1983). See also
Gillings, 568 F.2d at 1310; Garguilo, 554 F.2d at 62;.
The government need not cite in the indictment or information the
provision of the Code which requires the filing of the particular return
involved. United States v. Vroman, 975 F.2d 669, 671 (9th Cir. 1992).
It is enough that an indictment allege the elements of section 7203 "with
sufficient clarity to apprise [the defendant] of the charges against him and
is drawn with sufficient specificity to foreclose further prosecution upon
the same facts." Vroman, 975 F.2d at 671.
10.04[2][b] Section 6050I (Forms 8300)
Effective January 1, 1985, 26 U.S.C. § 6050I requires any person
engaged in a trade or business who receives more than $10,000 in cash in one
transaction (or two or more related) transaction(s) to file an information
return (Form 8300). The return is due the 15th day after the cash is
received.
Attorneys are not exempted from section 6050I's requirement that a
Form 8300 must be filed each time a person engaged in a trade or business
receives more than $10,000 in cash in the course of such trade or business.
See Lefcourt v. United States, 125 F.3d 79 (2d Cir. 1997)
(discussion of attorney's obligation to identify client on Form 8300 in
civil context). This requirement, as applied to attorneys, does not
violate the Fourth, Fifth, or Sixth Amendments. United States v.
Goldberger & Dubin, P.C., 935 F.2d 501 (2d Cir. 1991). Nor does it
violate the attorney-client privilege. United States v. Leventhal,
961 F.2d 936 (11th Cir. 1992). Section 7203 criminalizes the failure to
file a Form 8300. See, e.g., United States v. Olivo, 69 F.3d
1057 (10th Cir. 1995), opinion supplemented on rehearing, 80 F.3d
1466 (10th Cir. 1996).
10.04[3] Return Not Filed at Time Required by Law
10.04[3][a] What is a Return
The mere fact that an individual or entity files a tax form does not
necessarily satisfy the requirement that a return of income be filed. For
example, tax protestors or individuals who receive illegal source income
sometimes file the correct form but do not provide meaningful or complete
information. Such filings may include assertions of various constitutional
privileges.
Most courts take the approach that a form which does not contain
sufficient financial information to allow the calculation of a tax liability
is not a "return" within the meaning of 26 U.S.C. 7203. See, e.g.,
United States v. Kimball, 925 F.2d 356, 357 (9th Cir. 1991) (en
banc); United States v. Upton, 799 F.2d 432, 433 (8th Cir. 1986)
(where taxpayer included bottom line assertion of liability, but did not
include information from which that figure was derived); United States v.
Malquist, 791 F.2d 1399, 1401 (9th Cir. 1986) (Form 1040 with word
"object" written in all spaces requesting information is not a return);
United States v. Green, 757 F.2d 116, 121 (7th Cir. 1985); United
States v. Goetz, 746 F.2d 705, 707 (11th Cir. 1984); United States
v. Mosel, 738 F.2d 157, 158 (6th Cir. 1984); United States v.
Vance, 730 F.2d 736, 738 (11th Cir. 1984); United States v.
Grabinski, 727 F.2d 681, 686-87 (8th Cir. 1984) (taxpayer must divulge
"sufficient financial circumstances" to determine tax liability); United
States v. Stillhammer, 706 F.2d 1072, 1075 (10th Cir. 1983); United
States v. Verkuilen, 690 F.2d 648, 654 (7th Cir. 1982); United States
v. Reed, 670 F.2d 622, 623-24 (5th Cir. 1982); United States v.
Crowhurst, 629 F.2d 1297, 1300 (9th Cir. 1980); United States v.
Edelson, 604 F.2d 232, 234 (3d Cir. 1979); United States v.
Brown, 600 F.2d 248, 251-52 (10th Cir. 1979) (Forms 1040 containing
responses of "unknown" or "Fifth Amendment" are not returns); United
States v. Porth, 426 F.2d 519, 523 (10th Cir. 1970) ("A taxpayer's
return which does not contain any information relating to the taxpayer's
income from which the tax can be computed is not a return within the meaning
of the Internal Revenue Code or the regulations adopted by the
Commissioner"). See also discussion at Section 40.02[2],
infra.
When a form is filed containing only constitutional objections or
asterisks, there is little problem in applying this test and concluding that
the form does not constitute a return of taxes. Difficulties arise,
however, when the document filed contains all zeros or minimal monetary
amounts. The Ninth Circuit has taken the position that a Form 1040 with
zeros on all lines calling for the report of financial information is a
return because a tax liability, albeit an incorrect one, can be computed
from zeros. United States v. Long, 618 F.2d 74, 75 (9th Cir. 1980).
(Note that under Long, the filing of such a document could be charged
under 26 U.S.C. 7206(1) as the filing of a false return. Long, 618
F.2d at 75-76). Other courts have refused to follow Long. See,
e.g., Mosel, 738 F.2d at 158 (we align ourselves with those
circuits which have specifically considered and rejected the Ninth Circuit's
decision in Long); United States v. Moore, 627 F.2d 830, 835
(7th Cir. 1980). See also United States v. Rickman,
638 F.2d 182, 184 (10th Cir. 1980) (disagreement with the Long
decision); United States v. Smith, 618 F.2d 280, 281 (5th Cir.1980).
Those courts do not reject Long's premise that a tax liability can be
computed from zeros. Rather, they focus on the question whether the form
submitted was intended to convey the sort of information required to be
submitted to the government. Moore, 627 F.2d at 835 ("there must be
an honest and reasonable intent to supply the information required by the
tax code," and "when it is apparent that the taxpayer is not attempting to
file forms accurately disclosing his income, he may be charged with failure
to file a return"); Smith, 618 F.2d at 281 (returns which contained
nothing but zeros and constitutional objections plainly did not even purport
to disclose the required information).
Some decisions suggest that the determination of what is an adequate
return is a legal question, and the district court properly may decide the
question. United States v. Green, 757 F.2d 116, 121-22 (7th Cir.
1985); United States v. Moore, 627 F.2d 830, 834 (7th Cir. 1980);
United States v. Klee, 494 F.2d 394, 397 (9th Cir. 1974) (a return
that contained "absolutely no information" about the defendant's tax status
but merely stated "all details available on proper demand" is not a return,
and the "court was right in telling the jury so"). Other courts, however,
have cautioned that such a ruling may improperly invade the province of the
jury. See Section 40.02[3], infra. In view of the Supreme
Court's reasoning in United States v. Gaudin, 515 U.S. 506 (1995),
where the Court held that materiality in a prosecution under 18 U.S.C. 1001
is an element of the offense and must be submitted to the jury, the safer
practice would be to submit to the jury, under proper instructions, the
question of whether the form the defendant filed is a "return" within the
meaning of 26 U.S.C. 7203.
10.04[3][b] Return Not Filed at Time Required by Law
Section 7203 presupposes that the government is entitled to have a
required return filed on time. In the leading case of Spies v. United
States, 317 U.S. 492, 496 (1943), the Supreme Court noted the importance
given to timely filing:
Punctuality is important to the fiscal system, and these are
[criminal] sanctions to assure punctual as well as faithful
performance of these duties.
Generally, the Internal Revenue Code sets forth the time when a given
return must be filed. Thus, section 6072 of the Code prescribes the time
for filing income tax returns. See Treas. Reg. §§
1.6072-1, 1.6072-2 (26 C.F.R.).
Individuals on a calendar year basis are required to file on or before
the 15th day of April following the close of the calendar year. 26 U.S.C.
§ 6072(a). Corporations are generally required to file on or before
the fifteenth day of the third month following the close of the taxable
year, i.e., March 15th for a calendar year corporation. 26 U.S.C.
§ 6072(b). Sections 6075(a) and (b) fix the time for filing other
returns, such as estate and gift tax returns, and windfall profit tax
returns. Forms 8300 are due the 15th day after the cash is received.
See Treas. Reg. § 1.6050I-1(e) (26 C.F.R.).
When the last day for filing a return falls on a Saturday, Sunday, or
a legal holiday, the return will be considered timely filed if it is filed
on the next day which is not a Saturday, Sunday, or legal holiday. 26
U.S.C. § 7503. Thus, if a return is due on April 15th and April 15th
falls on a Saturday or a Sunday, the return would not be due until the
following Monday, unless the Monday is a legal holiday, in which event, a
return would not be due until the next day -- Tuesday.
Where the Code does not fix a time for the filing of a return, the
Secretary is directed to prescribe the time "by regulations" for filing any
return, statement, or document required to be filed by the Code or by
regulations. 26 U.S.C. § 6071.
Because the time required by law for filing a return is crucial to the
offense, the government's failure in its charge to properly allege the date
when the legal duty to file arose may jeopardize a prosecution. United
States v. Bourque, 541 F.2d 290, 293-94 (1st Cir. 1976) (IRS regulations
allow a new corporation to determine its own fiscal year and therefore date
return due); United States v. Goldstein, 502 F.2d 526, 528 (3d Cir.
1974).
Pursuant to section 6081(a) of the Code, the Secretary is authorized
to grant a "reasonable extension of time" for filing any return,
declaration, statement, or other document required to be filed. Except for
taxpayers who are abroad, the extension cannot be for a period longer than
six months. A corporation may obtain an automatic extension of three
months for filing a return if it meets the conditions set forth in the Code
and applicable regulations. 26 U.S.C. § 6081(b). Section 6081(b)
requires that, in order to be granted the extention, the corporation must
"pay [ ] on or before the date prescribed for payment of the tax, the amount
properly estimated as its tax."
Because there can be no crime of failing to file an individual return
by April 15th if the taxpayer has obtained extensions of time in which to
file, IRS records must be searched in any failure to file case to determine
that no extentions have been obtained by the taxpayer. See,
Goldstein, 502 F.2d 526, (reversing a conviction where Goldstein was
indicted for failing to file before April 15th, but at trial it developed
that Goldstein had applied for an extension and, thus, had no duty to file
until May 7th). An attempt should always be made to obtain the filed
extension form from the IRS. Many professional return preparers routinely
keep in their files unsigned extensions on behalf of their clients but an
extension application signed by the taxpayer provides evidence the taxpayer
knew a return was due. Moreover, because the extension application bears a
perjury jurat, a materially false signed extension application can form the
basis for a felony prosecution under 26 U.S.C. § 7206(1).
The following chart summarizes some of the filing requirements for the
most common taxpaying entities:
TAXPAYER RETURN/FORM GROSS INCOME DATE DUE
Individual 1040, 1040A, 1994 $6,250 April 17, 1995
(Single)* 1040EZ
1995 $6,400 April 15, 1996
1996 $6,550 April 15, 1997
1997 $6,800 April 15, 1998
1998 $6,950 April 15, 1999
1999 $7,050 April 17, 2000
2000 $7,200 April 16, 2001
2001 $ April 15, 2002
2002 $ April 15, 2003
GENERAL: 15th day
of 4th month
after close of
tax year
Married Filing 1040, 1040A, 1994 $11,200 April 17, 1995
Jointly 1040EZ
1995 $11,550 April 15, 1996
1996 $11,800 April 15, 1997
1997 $12,200 April 15, 1998
1998 $12,500 April 15, 1999
1999 $12,700 April 17, 2000
2000 $12,950 April 16, 2001
Corporation 1120 N/A 15th day of 3rd
month after close
of tax year
Sub S Corporation 1120S N/A Same
Partnership 1065 N/A 15th day of 4th
month after close
of tax year
Fiduciary (trust 1041 $600 gross or any 15th day of 4th
or taxable income month after close
estate income) of tax year
Person in Trade 8300 (CTR) receipt of more 15 day after cash
or than $10,000 cash received
Business
Employer 941 collected Quarterly - last
withholding tax day of month
(income and FICA) following
quarter**
Estate 706 Gross estate of 9 months after
$600,000 at time date of death
of death if after
1986
* Note that the minimum amount for a married individual whose spouse filed
separately is less.
** If the corporation has already deposited full amount, there is an
additional 10 days in which to file.
10.04[4] Proof of Failure to File
Establishing that there was a failure to file can be done either
through a witness or by a certification procedure. A combination of the two
methods also may be employed.
Witness Procedure If a witness is to be used, a representative
of the appropriate Service Center, i.e., one from the Service Center
having custody of returns for the required place of filing, is called to
testify. The witness testifies that he or she is a representative of the
Director of the Service Center, that he or she has custody of tax returns
for a given area, that the defendant was required to file with his or her
"office," that records are kept reflecting the returns filed, and that a
search of the records revealed that no return was filed by the defendant.
If this procedure is followed, the witness should personally conduct or
direct the search of the records.
In addition, the witness should be interviewed in advance, and the
questioner should establish during direct examination that the witness is
not testifying as an expert witness. This clarification is important
because failure to establish this fact can lead to confusion and a very
uncomfortable witness. In some cases, particularly those involving tax
protestors with experienced counsel, cross-examination concerning Service
Center procedures and various codes on IRS account transcripts may be
extensive. The questioning may also focus on the witness' knowledge
regarding whether the Service Center has lost or misplaced returns or
whether the computerized taxpayer account system is faulty. Reference should
be made to the discussion of tax protestor prosecutions in Section 40.00,
infra.
For two cases where the witness procedure was used, see
United States v. Greenlee, 517 F.2d 899, 902-03 (3d Cir. 1975);
United States v. Wellendorf, 574 F.2d 1289, 1291 (5th Cir. 1978).
Certification Procedure A failure to file by a given taxpayer
can be established without a witness by obtaining a certified transcript of
account from the appropriate Service Center stating that the taxpayer has
not filed a return for the year(s) in question. United States v.
Spine, 945 F.2d 143 (6th Cir. 1991); United States v. Ryan, 969
F.2d 238 (7th Cir. 1992) (trial court's decision to admit IRS computer
printouts will be reversed only for abuse of discretion); United States
v. Farris, 517 F.2d 226, 227-29 (7th Cir.1975) (IRS certified computer
records admissible as self-authenticating documents; Fed. R. Evid. 902(4));
United States v. Neff, 615 F.2d 1235, 1241-42 (9th Cir. 1980);
accord, United States v. Yakobov, 712 F.2d 20, 27 (2d Cir.
1983).
Federal Rule of Evidence 803(10) addresses the issue of the "absence
of a record, report, statement, or data compilation in any form or the
nonoccurrence or nonexistence of a matter of which a record, report,
statement, or data compilation, in any form, was regularly made and
preserved by a public office or agency." The rule provides that proof may
be in the form of testimony or a certification in accordance with Rule 902
of the Federal Rules of Evidence.
10.04[5] Willfulness
Reference should be made to the discussion of willfulness in each
section of this manual involving crimes of willfulness, particularly Section
8, supra, Attempt to Evade or Defeat Tax.
Willfulness is the state of mind which must be proven to establish
intent, and whether the charge is a felony (e.g., evasion) or a
misdemeanor (e.g., failure to file), the willfulness or intent that
must be established is the same. United States v. Bishop, 412 U.S.
346, 361 (1973).
Willfulness in criminal tax violations means a "voluntary, intentional
violation of a known legal duty." Cheek v. United States, 498 U.S.
192 (1991); United States v. Pomponio, 429 U.S. 10, 12 (1976);
United States v. Bishop, 412 U.S. 346, 360 (1973); United States
v. Ferguson, 793 F.2d 828, 831 (7th Cir. 1986); United States v.
Shivers, 788 F.2d 1046, 1048 (5th Cir. 1986); United States v.
Grumka, 728 F.2d 794, 796 (6th Cir. 1984); United States v.
Gleason, 726 F.2d 385, 388 (8th Cir. 1984); United States v.
Rothbart, 723 F.2d 752, 754 (10th Cir. 1983); United States v.
Moon, 718 F.2d 1210, 1222 (2d Cir. 1983); United States v.
Dahlstrom, 713 F.2d 1423, 1427 (9th Cir. 1983); United States v.
Verkuilen, 690 F.2d 648, 655 (7th Cir. 1982); United States v.
Drape, 668 F.2d 22, 26 (1st Cir. 1982); United States v.
Edelson, 604 F.2d 232, 235-36 (3d Cir. 1979); United States v.
Buckley, 586 F.2d 498, 503-04 (5th Cir. 1978);. Particular reference
should be made to the discussion of the subjective standard for willfulness
in Sections 8.00 and 40.00, supra.
Thus, in a failure to file prosecution, the government is required to
establish that the offender voluntarily and intentionally failed to file
returns which he knew were required to be filed. United States v.
Quimby, 636 F.2d 86, 90 (5th Cir. 1981). The government, however, need
not prove "evil motive or a bad purpose." United States v. Powell,
955 F.2d 1206, 1211 (9th Cir. 1991). See also United
States v. Schafer, 580 F.2d 774, 781 (5th Cir. 1978); Cooley v.
United States, 501 F.2d 1249, 1252-53 (9th Cir. 1974). To establish the
requisite level of willfulness for a violation of section 7203, the
government must prove that the offender deliberately failed to file returns
which the offender knew the law required to be be filed. United States
v. Evanko, 604 F.2d 21, 23 (6th Cir. 1979); United States v.
Brown, 600 F.2d 248, 258 (10th Cir. 1979); United States v.
Hawk, 497 F.2d 365, 366-69 (9th Cir. 1974);.
Demonstration of a good purpose is not a defense to a charge of
willful failure to file. If it is shown that the taxpayer intentionally
violated a known duty, the reason for doing so is irrelevant. United
States v. Dillon, 566 F.2d 702, 703 (10th Cir. 1977) (attempt to test
constitutionality of income tax laws). In United States v. McCorkle,
511 F.2d 482 (7th Cir. 1975) (en banc), the court rejected the
defendant's argument that to prove a willful failure to file the government
had to establish an intent to defraud. The jury instruction upheld by the
court is reprinted in a footnote to the opinion. See
McCorkle, 511 F.2d at 484 n.2. The McCorkle case furnishes a
good example of evidence that is not admissible in defense of a failure to
file, e.g., contemplating suicide, no funds available to pay taxes,
fear of IRS liens on property, involved in divorce, offering to pay civil
liabilities, and not keeping accurate records. 511 F.2d at 486. See
also United States v. Klee, 494 F.2d 394, 395 n.1 (9th Cir.
1974) ("no necessity that the government prove that the defendant had an
intention to defraud it, or to evade the payment of any taxes . . . .").
Willfulness is thus established when the government proves that the
failure to file was "voluntary and purposeful and with the specific intent
to fail to do that which he knew the law required." United States v.
Wilson, 550 F.2d 259, 260 (5th Cir. 1977); Cooley, 501 F.2d at
1253 n.4. But willfulness is not established if the government proves only a
"careless and reckless disregard" for the obligation to file. United
States v. Eilertson, 707 F.2d 108, 109-10 (4th Cir. 1983) (trial court
improperly used pre-Bishop "careless disregard" jury instruction).
See United States v. Wolters, 656 F.2d 523, 525 (9th Cir.
1981) (jury instruction sufficiently defined willful so as to exclude
"reckless disregard").
10.04[5][a] Proof of Willfulness
Proof of willfulness may be, and usually is, shown by circumstantial
evidence alone. United States v. Grumka, 728 F.2d 794, 796-97 (6th
Cir. 1984); United States v. Gleason, 726 F.2d 385, 388 (8th Cir.
1984); United States v. Marabelles, 724 F.2d 1374, 1379 (9th Cir.
1984) (section 7201) (list of acts from which willfulness can be inferred);
United States v. Schiff, 612 F.2d 73, 77-78 (2d Cir. 1979)
(previously filed corporate and personal returns; reminder by accountant);
United States v. Brown, 548 F.2d 1194, 1199 (5th Cir. 1977) (letters
from Service Center); Swallow v. United States, 307 F.2d 81, 83
(10th Cir. 1962) (section 7201).
Willfulness is suggested by a pattern of failing to file for
consecutive years in which returns should have been filed. United States
v. Greenlee, 517 F.2d 899, 903 (3d Cir. 1975). This may include years
prior or subsequent to the prosecution period. United States v.
Upton, 799 F.2d 432, 433 (8th Cir. 1986); United States v.
Farris, 517 F.2d 226, 229 (7th Cir. 1975)..
Willfulness may also be shown by such acts as mailing tax protest
materials to the IRS, disregarding IRS warning letters, and filing
contradictory forms. United States v. Shivers, 788 F.2d 1046, 1048
(5th Cir. 1986) (defendant filed a W-4 claiming he was exempt from
withholding only four days after filing a W-4 claiming three allowances);
see also United States v. Upton, 799 F.2d 432, 433 (8th
Cir. 1986) (defendant sent protestor materials to IRS).
There is also an element of common sense in establishing willfulness
in a failure to file case. Thus, willfulness can be shown by such factors
as: the background of the defendant; the filing of returns in prior years,
United States v. Briscoe, 65 F.3d 576, 588 (7th Cir. 1995);
United States v. Hauert, 40 F.3d 197, 199 (7th Cir. 1994); United
States v. Birkenstock, 823 F.2d 1026, 1028 (7th Cir. 1987); United
States v. Bohrer, 807 F.2d 159, 161 (10th Cir. 1986) United States v.
Shivers, 788 F.2d 1046, 1048 (5th Cir. 1986); that the defendant was a
college graduate with accounting knowledge; that the defendant was familiar
with books and records and operated a business, United States v.
Segal, 867 F.2d 1173, 1179 (8th Cir. 1989); that the defendant earned a
large gross income, Bohrer, 807 F.2d at 161. See also
United States v. MacLeod, 436 F.2d 947, 949 (8th Cir. 1971) United
States v. Ostendorff, 371 F.2d 729, 731 (4th Cir. 1967);.
Similarly, where the defendant received a standard Form W-2, the Third
Circuit found that:
the jury was entitled to view the W-2 Forms as reminders of the duty
to file received shortly before or during the period in which filing
was required.
United States v. Cirillo, 251 F.2d 638, 639 (3d Cir. 1957). The Form
W-2 does not serve as a return, whether filed by the taxpayer or employer.
Birkenstock, 823 F.2d at 1030. See also Section
40.14[16], infra.
Also, evidence that a defendant had filed returns in other years when
he claimed refunds while there was a substantial tax due for the years he
failed to file is relevant evidence and more than enough to establish
willfulness. Garguilo, 554 F.2d at 62.
10.04[5][b] Willful Blindness or Deliberate Ignorance
Because willfulness requires a voluntary and intentional violation of
a known legal duty, it is a defense to a finding of willfulness that the
defendant was ignorant of facts which made the conduct illegal. Such
ignorance is not a defense, however, if the defendant purposefully sought to
avoid knowledge. See United States v. Kelm, 827 F.2d 1319 (9th
Cir. 1987). There are few cases in which the facts point to deliberate
ignorance. Id. at 1323-24. Deliberate ignorance or conscious
avoidance requires proof of more than the fact that "the defendant was
mistaken, recklessly disregarded the truth or negligently failed to
inquire." Id. Accord United States v. Mapelli, 971 F.2d 284,
286 (9th Cir. 1992). The evidence must support an inference that a
defendant "consciously avoided the any opportunity to learn what the tax
consequences were." United States v. Bussey, 942 F.2d 1241, 1428
(8th Cir. 1992)
When the evidence supports the conclusion that a defendant purposely
contrived to avoid learning all the facts, the government may be entitled to
an instruction on deliberate ignorance. United States v. Mapelli, 971
F.2d at 286. The use of an "ostrich instruction" -- also known as a
deliberate ignorance, conscious avoidance, willful blindness, or a
Jewell instruction (see United States v. Jewell, 532
F.2d 697 (9th Cir. 1976)) -- may be appropriate in circumstances where "a
person suspects a fact, realizes its probability, but refrains from
obtaining final confirmation in order to be able to deny knowledge if
apprehended." Jewell, 532 F.2d at 700 n.7.
A number of courts have approved the use of such instructions under
proper circumstances. See, e.g., United States v.
Picciandra, 788 F.2d 39, 46 (1st Cir. 1986); United States v.
MacKenzie; 777 F.2d 811, 818-19 (2d Cir. 1985); United States v.
Callahan, 588 F.2d 1078 (5th Cir. 1979); United States v. Dube,
820 F.2d 886, 892 (7th Cir. 1987); United States v. Bussey, 942 F.2d
at 1246; United States v. Fingado, 934 F.2d 1163, 1166-67 (10th Cir.
1991). Note, however, that courts have observed that the use of such
instructions is "rarely appropriate." United States v.
deFrancisco-Lopez, 939 F.2d 1405, 1409 (10th Cir. 1991) (relying on
several Ninth Circuit cases).[FN2] Thus, it is not advisable to request
such an instruction unless it is clearly warranted by the evidence in a
particular case. Furthermore, the language of any deliberate ignorance
instruction in a criminal tax case must comport with the government's
obligation to prove the voluntary, intentional violation of a known legal
duty. The deliberate ignorance instruction set forth in United States v.
Fingado, 934 F.2d at 1166, appears to be suitable for a criminal tax
case.[FN3] Further, to avoid potential confusion with the meaning of
"willfulness" as it relates to the defendant's intent, it may be wise to
avoid use of the phrase "willful blindness," using instead such phrases as
"deliberate ignorance" or "conscious avoidance."[FN4]
10.04[6] Tax Deficiency Not Necessary
The crime of failing to file a return is complete if a return was
required to be filed at a given date and the taxpayer intentionally did not
file a return. There is no requirement that the government prove a tax
liability, as long as the proof establishes that the taxpayer had sufficient
gross income to require the filing of a return. Spies v. United
States, 317 U.S. 492, 496 (1943); United States v. Wade, 585 F.2d
573, 574 (5th Cir. 1978). As a practical matter, evidence establishing a tax
deficiency usually will be offered as a part of the government's evidence of
willfulness but, as noted, this is technically not necessary. See
United States v. Schmitt, 794 F.2d 555, 560 (10th Cir. 1986)
(evidence of tax liability relevant and not prejudicial in failure to file
case). See also United States v. Hairston, 819 F.2d
971, 974 (10th Cir. 1987) (defendant not allowed to show that he would have
received refund to negate willfulness).
10.04[7] Venue - Failure to File
Reference should be made to the discussion of venue in Section 6.00,
supra.
As a general rule, venue in a failure to file case is proper in any
judicial district in which the taxpayer is required to file, i.e.,
the district in which the crime was committed. United States v.
Rice, 659 F.2d 524, 526 (5th Cir. 1981); United States v.
Quimby, 636 F.2d 86, 89 (5th Cir. 1981).
Section 6091 of the Code sets forth the places for filing returns. In
those instances where the Code does not provide for the place of filing, the
Secretary "shall by regulations" prescribe the place for filing. 26 U.S.C.
§ 6091(a).
Generally, individual tax returns are to be filed either in the
internal revenue district where the taxpayer resides or has his principal
place of business, or at the Service Center serving the internal revenue
district where the taxpayer resides or has his principal place of business.
26 U.S.C. § 6091(b); Treas. Reg. § 1-6091-2 (26 C.F.R.);
United States v. Garman, 748 F.2d 218, 219 (4th Cir. 1984). "'Legal
residence' means the permanent fixed place of the abode which one intends to
be his residence and to return to it despite temporary residences elsewhere,
or absences." United States v. Calhoun, 566 F.2d 969, 973 (5th Cir.
1978). Note that, "(a)n individual employed (exclusively) on a salary or
commission basis . . . does not have a 'principal place of business' within
the meaning of this section." Treas. Reg. § 1.6091-2(a)(2) (26
C.F.R.).
One exception to the general rule for individuals provides that if the
taxpayer's legal residence is outside the United States or if his return
bears a foreign address, the return should be filed with the Director of
International Operations, Internal Revenue Service, Washington, D.C., or the
district director, or the director of the Service Center, depending on the
appropriate officer designated on the return form or in the instructions
issued with the return. Treas. Reg. § 1.6091-3(b) (26 C.F.R.). Another
exception provides that if an individual, although continuously present in
the United States, has no legal residence or principal place of business in
any internal revenue district, the return should be filed with the District
Director in Baltimore, Maryland. Treas. Reg. § 1-6091-2(a)(1) (26
C.F.R.).
For a corporation, the general rule is substantially the same as for
individuals, except that the "principal office or agency of the corporation"
is substituted for "legal residence." Treas. Reg. § 1.6091-2(b) (26
C.F.R.).
While no case exactly on point has been located, a reasonable
interpretation would suggest that the place of performance is to be
determined on the basis of the taxpayer's legal residence or principal place
of business at the time the return was due, because 26 U.S.C. § 6091 is
written in the present tense.
Returns can also be filed by hand-carrying to the appropriate Internal
Revenue Service office (26 U.S.C. § 6091(b)(4)). The regulations
provide, for example, that an individual return "filed by hand-carrying
shall be filed with the district director (or with any person assigned the
administrative supervision of an area, zone, or local office constituting a
permanent post of duty within the internal revenue district of such
director) . . . ." Treas. Reg. § 1.6091-2(d)(1) (26 C.F.R.). The
reference to the district director or local office refers back to the
district "in which is located the legal residence or principal place of
business" of the taxpayer. Id.
As a practical matter, all of this means that venue in the usual
individual failure to file case can be placed in the district where the
appropriate Service Center is located, or in the district where the taxpayer
resides or has his principal place of business. Note, however, that under
the statute governing venue in continuing offenses, 18 U.S.C. § 3237,
specific reference is made to cases brought pursuant to sections 7201, 7203,
and 7206(1), (2), and (5). Section 3237(b) provides that where an offense is
described in section 7203 or when venue for a prosecution of an offense
described in section 7201 or section 7206(1), (2), or (5) is based solely on
a mailing to the IRS and prosecution is begun in a judicial district other
than the judicial district in which the defendant resides, the case may be
transferred upon motion by the defendant to the district in which he was
residing at the time the offense was committed. See also
Section 6.00, supra, on venue in this Manual.
10.04[8] Statute of Limitations
Reference should be made to Section 7.00, supra, discussing the
statute of limitations in criminal tax cases.
The statute of limitations for a failure to file a return is six (6)
years, except for information returns required under Part III of subchapter
A of Chapter 61 of the Internal Revenue Code. 26 U.S.C. § 6531(4).
For information returns required by the Code, including returns (Forms 8300)
required pursuant to section 6050I, the period of limitations is three (3)
years, as is the period of limitations for failure to supply information or
keep records.
The statute of limitations is computed from the due date of the
return. See Section 10.04(3), supra. In the case of an
individual, this will usually be April 15th, unless an extension of time in
which to file is granted (26 U.S.C. § 6081), in which event the statute
is computed from the extended compliance date. See United States
v. Pandilidis, 524 F.2d 644, 647-648 (6th Cir. 1975); United States
v. Goldstein, 502 F.2d 526, 529-530 (3d Cir. 1974)
The statute of limitations is tolled by the filing of the information
or indictment. United States v. Saussy, 802 F.2d 849, 851 (6th Cir.
1986) (claim that information must be "verified" by affidavit or other prior
determination of probable cause rejected). The statute is also tolled when
the defendant is outside the United States or is a fugitive from justice, 26
U.S.C. § 6531, and during certain summons enforcement proceedings, 26
U.S.C. § 7609(e).
10.05 FAILURE TO PAY
10.05[1] Elements
To establish the offense of failure to pay a tax, the government must
prove beyond a reasonable doubt that:
(1) The defendant had a duty to pay a tax;
(2) The tax was not paid at the time required by law; and,
(3) The failure to pay was willful.
United States v. Tucker, 686 F.2d 230, 232 (5th Cir. 1982).
See Sansone v. United States, 380 U.S. 343, 351 (1965).
Prosecutions of a willful failure to pay "are rare". United States v.
Tucker, 686 F.2d at 233.
10.05[2] Required by Law to Pay
This element should not pose any undue difficulty. If the taxpayer
has not filed a return, the charge would be a failure to file. However, when
a return is filed that reflects a tax due and owing, and no tax is paid,
there are at least two possible charges, depending on the facts -- an
attempted evasion of payment, in violation of 26 U.S.C. § 7201, or a
failure to pay a tax, in violation of 26 U.S.C. § 7203. The charge
would be under section 7203 if there was no affirmative attempt to evade the
payment such as, for example, the concealment of assets or the use of
nominees, but, rather, simply a failure to pay a tax that was due and owing.
As to the time of payment, section 6151(a) of the Code sets forth the
general rule as follows:
Except as otherwise provided in this subchapter, when a return of tax
is required under this title or regulations, the person required to
make such return shall, without assessment or notice and demand from
the Secretary, pay such tax to the internal revenue officer with whom
the return is filed, and shall pay such tax at the time and place
fixed for filing the return . . . .
See United States v. Drefke, 707 F.2d 978, 981 (8th Cir.
1983).
In the usual failure to pay case, the taxpayer will have filed a
return and then failed to pay the tax. While most assessments are based on
filed returns, it is not necessary that the Service assess the tax as due
and owing, because a tax deficiency arises by operation of law on the date
the return is due. 26 U.S.C. § 6151(a); United States v.
Silkman, 220 F.3d 935, 937 (8th Cir. 2000), cert. denied, 121
S.Ct. 889 (2001); United States v. Voorhies, 658 F.2d 710, 714 (9th
Cir. 1981) (evasion of payment case). Otherwise stated, it is not necessary
that there be an administrative assessment before a criminal prosecution may
be instituted. Voorhies, 658 F.2d at 714-15. Accord,
United States v. Daniel, 956 F.2d 540, 542 (6th Cir. 1992);
United States v. Dack, 747 F.2d 1172, 1174 (7th Cir. 1984).
10.05[3] Failure to Pay
The Internal Revenue Service will provide a qualified witness and/or a
certified transcript of account or a certificate of assessments and payments
establishing the failure to pay the tax. Section 6151(a) of the Code
provides that the tax must be paid at the time and place fixed for filing
"determined without regard to any extension of time for filing the return."
10.05[4] Willful Failure to Pay
See the discussion of willfulness in Sections 8.06 and
10.04[4], supra.
In United States v. Andros, 484 F.2d 531 (9th Cir. 1973), the
court, in sustaining a conviction for willful failure to pay, took the
position that to establish willfulness the government must prove that the
taxpayer had sufficient funds to pay the tax and voluntarily and
intentionally did not do so. Id. at 531. But the court also stated
that willfulness connotes bad faith or evil intent in view of all the
financial circumstances of the taxpayer. This premise is no longer viable
after United States v. Pomponio, 429 U.S. 10 (1976).
In United States v. Tucker, 686 F.2d 230 (5th Cir. 1982), the
Fifth Circuit rejected the defendant's contention that the government had to
prove the defendant was financially able to pay the tax when it became due,
saying (686 F.2d at 233):
Tucker's second argument is that, in order to show willfulness under
Section 7203, the government must prove that the taxpayer was
financially able to pay his tax debt when it came due. Tucker argues
that he was unable to pay his taxes when due because his checking
accounts had either very low or negative balances, and because he had
no other assets available to satisfy the debt. He thus concludes that
his failure to pay was not willful. This argument borders on the
ridiculous. Every United States citizen has an obligation to pay his
income tax when it comes due. A taxpayer is obligated to conduct his
financial affairs in such a way that he has cash available to satisfy
his tax obligations on time. As a general rule, financial ability to
pay the tax when it comes due is not a prerequisite to criminal
liability under Section 7203. Otherwise, a recalcitrant taxpayer
could simply dissipate his liquid assets at or near the time when his
taxes come due and thereby evade criminal liability.
The court declined to follow the Ninth Circuit in Andros, 484 F.2d
531, taking the position that the language in Andros, to the effect
that it must be shown that a taxpayer has sufficient funds to pay the tax on
or about the day the tax was due, was dicta. Tucker, 686 F.2d at
233. Again, it would seem to be only common sense that a taxpayer who has
dissipated his assets on luxury items should not be able to avoid criminal
prosecution by showing that he had no funds to pay the taxes he owed.
See also Section 9.03, supra.
10.05[5] Venue
Reference should be made to the discussion of venue in Sections 6.00
and 10.04[7], supra.
Generally, a person required to pay a tax must pay the tax at the
place fixed for filing the return. Venue would therefore normally be in the
district where the return was filed. As previously noted, where there is no
filing the charge normally would be a failure to file rather than a failure
to pay a tax.
10.05[6] Statute of Limitations
The statute of limitations is six years "for the offense of willfully
failing to pay any tax . . . at the time or times required by law or
regulations." 26 U.S.C. § 6531(4). See United States v.
Smith, 618 F.2d 280, 281-82 (5th Cir. 1980).
The six-year period of limitations begins to run when the failure to
pay the tax becomes willful, not when the tax is assessed or when payment is
demanded. Andros, 484 F.2d at 532-33. See also
United States v. Sams, 865 F.2d 713, 716 (6th Cir. 1988) ("the
limitation period begins to run when the taxpayer manifests some act of
willful nonpayment"); United States v. Pelose, 538 F.2d 41, 44-45
(2d Cir. 1976)..
10.06 SENTENCING
Reference should be made to Section 5.00 infra, which discusses
the application of the Federal Sentencing Guidelines to criminal tax cases.
Note, however, that costs of prosecution must be included in the punishment
imposed for failure to file. United States v. May, 67 F.3d 706, 707
(8th Cir. 1995).
10.07 DEFENSES
There are a number of defenses that have been litigated and decided by
the courts. A list of some of the common defenses raised in failure to file
cases and their treatment by the courts follows.
10.07[1] Intent to Pay Taxes in Future
The intent to report and pay taxes due in the future does not
constitute a defense and "does not vitiate" the willfulness required for a
failure to file or, for that matter, for an attempt to evade. Sansone v.
United States, 380 U.S. 343, 354 (1965).
10.07[2] Absence of a Tax Deficiency
There is no requirement that the government establish a tax liability
in a failure to file case, as long as the taxpayer had a gross income that
required the filing of a return. Spies v. United States, 317 U.S.
492, 496 (1943); United States v. Wade, 585 F.2d 573, 574 (5th Cir.
1978).
10.07[3] Delinquent Filing
The defense of filing late returns has been rejected in failure to
file cases. In addition, evidence offered by the defendant of late filing
and the late payment of taxes has been excluded. United States v.
Ming, 466 F.2d 1000, 1005 (7th Cir. 1972); United States v.
Greenlee, 380 F. Supp. 652, 660 (E.D. Pa. 1974), aff'd., 517 F.2d
899, 903 (3d Cir.).
The First Circuit, in United States v. Bourque, 541 F.2d 290,
294 (1st Cir. 1976), noted the principle that "subsequent conduct cannot
relieve a taxpayer from criminal liability for failure to file tax returns
on or before their due date." In this connection, the Seventh Circuit has
upheld the exclusion of evidence by the defendant that he had eventually
paid his taxes, even though the government was allowed to prove the amount
of taxes the defendant owed for the years in issue. United States v.
Sawyer, 607 F.2d 1190 (7th Cir. 1979).
10.07[4] Negligence
Because failure to file and failure to pay are specific intent crimes,
negligence is a defense to willfulness. The government must prove that the
defendant acted purposefully as distinguised from inadvertently,
negligently, or mistakenly. United States v. Collins, 457 F.2d 781,
783 (6th Cir 1972); United States v. Matosky, 421 F.2d 410, 413 (7th
Cir. 1970).
10.07[5] Civil Remedy Not Relevant
The fact that the government could proceed civilly, instead of
criminally, is "irrelevant to the issue of criminal liability and the
defendant is not entitled to an instruction that the government could assess
the taxes without filing criminal charges." United States v. Buras,
633 F.2d 1356, 1360 (9th Cir. 1980); United States v. Merrick, 464
F.2d 1087, 1093 (10th Cir. 1972).
10.07[6] Inability to Pay
The Seventh Circuit has stated that a defendant is not entitled to an
instruction on inability to pay where no foundation was laid in the evidence
that the defendant lacked the money to pay his taxes:
Lewis had money to pay the other expenses of his business; he just
assigned a lower priority to paying withholding taxes than to meeting
his other expenses. This does not "show inability to pay" and the
judge was not required to give an instruction that was premised on
such inability.
United States v. Lewis, 671 F.2d 1025, 1028 (7th Cir. 1982). See
also, United States v. Tucker, 686 F.2d 230, 233 (5th Cir. 1982).
10.07[7] IRS Required to Prepare Returns
Section 6020 of the Internal Revenue Code provides that if a person
fails to file a return or makes a willfully false return, the Secretary
"shall make such return from his own knowledge or from such information as
he can obtain." Courts have uniformly disapproved the use of this section as
a defense in failure to file cases. See, e.g., United
States v. Powell, 955 F.2d 1206, 1213 (9th Cir. 1991). Accord,
United States v. Lacy, 658 F.2d 396, 397 (5th Cir. 1981); See
also Moore v. C.I.R., 722 F.2d 193, 196 (5th Cir. 1984).
A defendant in the Eastern District of New York claimed that the
government was barred from prosecuting him for failure to file, because he
had filed partnership returns, which triggered the IRS's duty to file
individual returns for him under section 6020(b) of the Code. Rejecting
this defense and holding that the government was not barred from prosecuting
for a failure to file, the court in an unpublished opinion stated that the
defendant's interpretation of the statutes was "inherently implausible" and
that section 6020(b) "cannot be interpreted as foreclosing civil or criminal
sanctions for acts or omissions of the taxpayer." United States v.
Harrison, 30 A.F.T.R. 72-5367 (E.D.N.Y. 1972), aff'd. without
opinion, 486 F.2d 1397 (2d Cir. 1972), cited with approval in
Hollett v. Browning, 711 F.Supp 1009 (E.D. Ca 1988).
In United States v. Millican, 600 F.2d 273, 278 (5th Cir.
1979), the court held that there was "no merit to Millican's claim of
entitlement to an instruction that the Internal Revenue Service was under a
duty pursuant to 26 U.S.C.A. section 6020(b)(1) to prepare his tax return."
Similarly, the Seventh Circuit upheld a jury instruction on section
6020(b) which stated that while the law permits the Secretary to prepare a
return, "the law does not require the Secretary to do so and the Secretary's
discretion in this matter in no way reduces the obligation of the individual
taxpayers to file their returns." United States v. Verkuilen, 690
F.2d 648, 656 (7th Cir. 1982).
10.07[8] Marital and Financial Difficulties
The refusal of the trial judge to allow an attorney charged with a
failure to file to introduce evidence of marital and financial difficulties
has been upheld on the grounds that "evidence of financial and domestic
problems are not relevant to the issue of willfulness" as used in section
7203. Bernabei v. United States, 473 F.2d 1385 (6th Cir. 1973).
See also United States v. Greenlee, 517 F.2d 899, 903
(3d Cir. 1975).
10.07[9] Fear of Filing
Saying it was "no defense," the Second Circuit upheld the refusal of
the trial judge to instruct the jury that it must acquit if it found the
defendant did not file his returns because of a fear of incriminating
himself for prior violations. United States v. Egan, 409 F.2d 997,
998 (2d Cir. 1972).
10.07[10] Claim That Returns Were Mailed
A jury could find that returns not received by the Internal Revenue
Service were in fact mailed as claimed by a defendant. But a thorough
explanation by a representative of the appropriate Service Center respecting
the manner in which returns are received and processed, coupled with
evidence that the Service Center never received the returns, is sufficient
to support a conviction under section 7203. United States v.
Greenlee, 517 F.2d 899, 903 (3d Cir. 1975).
10.07[11] Complicated Records
While characterizing the defense as "lame" and upholding the
conviction on failure to file charges, the Sixth Circuit held that it was
error not to permit the defendant to introduce in evidence some of his
records to corroborate his claim that the records were so complicated he
could not file accurate returns on time. United States v. Dark, 597
F.2d 1097, 1099-1100 (6th Cir. 1979).
10.07[12] Paperwork Reduction Act
The Paperwork Reduction Act, 44 U.S.C. § 3512 (PRA), provides
that no person shall be subject to any penalty for failing to provide
information if an agency's request does not display an Office of Management
and Budget (OMB) number. Tax returns are agency requests within the scope
of the PRA and bear OMB numbers. However, return instruction booklets do
not bear OMB numbers and tax protestors have attempted to manufacture a
defense on this basis. The absence of an OMB number from tax return
instruction booklets does not excuse the duty to file the return. United
States v. Ryan, 969 F.2d 238, 240 (7th Cir. 1992) (IRS instruction
booklets merely assist taxpayers rather than independently request
information); United States v. Holden, 963 F.2d 1114, 1116 (8th Cir.
1992). Also, it is not necessary that an expiration date appear on a
return. Salberg v. United States, 969 F.2d 379, 384 (7th Cir. 1992)
(year designation, e.g., "1990" is sufficient). See
also Section 40.14[20], infra.
10.07[13] Other Defenses
In United States v. Dunkel, 900 F.2d 105, 107-08 (7th Cir.
1990), vacated and remanded on other grounds, 498 U.S. 1043 (1991),
rev'g on other grounds, 927 F.2d 955 (7th Cir. 1991), a tax
protestor defendant claimed that the requirement to "make a return" was
unconstitutionally vague. The defendant posited different interpretations
of the word "make," including to "construct a return out of raw materials."
Dunkel, 900 F.2d at 107. The Court had little sympathy for this
frivolous argument and rejected it by stating that "statutes are not
unconstitutional just because clever lawyers can invent multiple meanings."
Dunkel, 900 F.2d at 108.
10.08 LESSER INCLUDED OFFENSE/RELATIONSHIP TO TAX EVASION
In charging and sentencing determinations, the question sometimes
arises whether section 7203 is a lesser included offense of section 7201,
tax evasion. Reference should be made to the
detailed discussion of this issue in Section 8.09, supra.
FN 1. Changed to 18 U.S.C. § 3571, commencing Nov. 1, 1986.
FN 2. But see United States v. Rodriguez, 983 F.2d 455, 457
(2d Cir. 1993) (Second Circuit more willing than Ninth Circuit to authorize
use of this type of instruction).
FN 3. Out of an abundance of caution, however, a prosecutor may wish to
utilize the instruction set out in United States v. MacKenzie, 777
F.2d 811, 818 n.2 (2d Cir. 1985).
FN 4. It is suggested that any time a deliberate ignorance or conscious
avoidance instruction is given, the prosecutor should also insure that the
jury is expressly directed not to convict for negligence or mistake.